Obama’s Risky Fire Sale

The Obama administration recently notified Congress it will grant a high-technology arms export license to a Hong Kong satellite company with Chinese ties, a move congressional Republicans say violates U.S. sanctions on Beijing.

The State Department notified the House and Senate on March 20 that it planned to issue a license under the Arms Export Control Act to Space Systems/Loral to sell restricted satellite technology to Hong Kong-based Asia Satellite Telecommunications Company, Ltd., (known as AsiaSat); Hong Kong businessman Barry Turner; and Thaicom Public Company, Ltd., in Thailand.

The dispute comes after the U.S. Ambassador to China Gary Locke said in a recent speech that the Obama administration has told China it is preparing for a major loosening of U.S. export controls "that will enable more high-tech goods to be exported to China."

Regarding the satellite export, a congressional aide close to the case said the AsiaSat deal involves the transfer of defense articles, including technical data and defense services, as part of a design review and building up the AsiaSat 6 commercial communications satellite program.

"Since the enactment of sanctions on China and the transfer of communications satellites to munitions controls in 1998, any licenses for such items are denied to China," the aide said, noting that the State Department is claiming that the U.S.-Hong Kong Policy Act of 1992 permits arms export licenses to Hong Kong.

Committees in both the House and Senate are investigating the proposed satellite export license and whether it would violate U.S. sanctions on China.

The license consideration grew out of a December 2011 deal between AsiaSat and Thiacom, a Thailand-based satellite and telecommunications firm. The deal allows AsiaSat to expand its business by using an orbital slot controlled by Thaicom under international rules.

The problem, according to aides, is that AsiaSat is owned in part by both General Electric Co. and the state-owned China International Trust and Investment Corporation or CITIC.

Investigators have determined that stakes of GE and CITIC in AsiaSat are indirect and managed through another firm called Bowenvale Ltd.

If CITIC’s ownership in AsiaSat is confirmed, officials say the pending Loral license would violate U.S. sanctions on China imposed after the 1989 Chinese military crackdown on unarmed protesters in Beijing’s Tiananmen Square.

One official said, "It appears AsiaSat is owned by CITIC."

According to U.S. officials, both CITIC and AsiaSat were directly involved in the loss of U.S. strategic missile technology to China that resulted from improper missile-related space technology sharing following a series of Chinese space launch failures in the late 1990s.

"At the time of the violations, the majority shareholder in AsiaSat was China International Trust and Investment Corporation (CITIC), a state-owned corporation of the PRC," the congressional aide said.

Congress passed legislation in 1999 requiring the administration to treat U.S. satellite exports and related technology cooperation with China as weapons exports. The move followed a series of Chinese space launch failures in the 1990s involving two U.S. satellite companies who improperly shared sensitive missile-related technology that the Pentagon later concluded helped improve the reliability of Chinese strategic missiles.

Loral was one of the companies, and the second was Hughes Space and Communications International, Inc. Both companies were fined for the improper technology transfers.

State Department spokesmen had no immediate comment. A Loral spokeswoman also had no immediate comment.

A House Foreign Affairs Committee aide declined to comment on the specific Loral case. "The Committee carefully and extensively scrutinizes all arms transfer notifications," the aide said, noting State recently began to make Congress aware of possible future arms transfers before a final interagency decision is made.

The House panel is focused on oversight of the Chinese threat to U.S. national security and interests, as evidenced by this week’s full committee hearing on China’s military and economic aggression, and two China-related subcommittee hearings, the aide said.

Barry Turner, the Hong Kong end user specified in the license application and managing director of Engineering Matters Consulting Co. Ltd, could not be reached for comment.

Locke, the U.S. ambassador in Beijing, said China provided a list of 141 high-technology items it wants to buy from the United States, and the administration determined that 46 of the technologies "can be readily exported to China, and some may not need a license at all."

"We need additional detail from China on the remaining requested items, so that we can determine whether and under what conditions they can be exported," Locke said in Shanghai on March 19. "In the meantime, we are going a step further, also to move beyond rhetoric. In May, we are bringing a delegation of U.S. companies to Shanghai focusing on high-tech goods, including items on the list, to meet with Chinese companies interested in purchasing these high-tech goods."

Critics in Congress and outside government have said the administration’s export reform efforts could endanger U.S. national security by allowing dual-use, civilian-military technology to go to China, where it will be incorporated into China’s large-scale military modernization program.

Regarding Locke’s comments on allowing 46 high-tech U.S. products to be sent to China, the Commerce Department’s Bureau of Industry and Security said China supplied a list of the 141 high-tech items in January 2011 prior to the visit of Chinese President Hu Jintao.

"The Commerce and Defense Departments reviewed the list and determined that about a third of the listed items appear to be of a type that do not now require a license for export to China if for civil end use," Robert Rarog, a Commerce official, told Congress recently.

"We could not, however, be certain that the items would not require a license to export to China because the descriptions provided were often vague and without the necessary technical parameters."

Rarog said that if Beijing provides the information sought by the administration, and the items are not restricted under sanctions or require an export license, "then we will provide that information to the Chinese government."

But if the items are found to require a license for export or could be used for military purposes, the Chinese will be told that, he said.

"In other words, the bilateral requests for information that led to Secretary Locke's remarks indeed occurred during discussions of the Export Control Reform effort, but are actually about what current law and regulations permit and prohibit," Rarog said.

Rorag said Locke’s comments were not part of the administration plan to de-control or change controls on the 46 items for China. The items in question also are not part of the larger export control reform effort as it relates to review and revision of the U.S. Munitions List.